Amendments to a SATR

How far back can/should I go?

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I have a client who needs to amend various historical Self-Assessment tax returns (2015, 2016, 2017 & 2018) to allow for tax due on the Pension Annual Allowance charge which he has recently been made aware of by his employer's pension scheme.

Presumably as there is tax to pay, I should just amend the relevant returns and send them to HMRC on paper despite the earlier ones being technically out of time?

As the tax returns have already been submitted on time, and these will be amendments proferred by the taxpayer himself, do you feel that there will be any penalties due or just late payment interest and surcharges?

Any guidance greatfully received as I've not come across this position quite before.

Many thanks

Replies (14)

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By Rammstein1
24th Sep 2020 16:29

I've done one on paper recently for 2018. No penalties, just interest and waiting for surcharge.

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Replying to Rammstein1:
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By Southwestbeancounter
24th Sep 2020 16:49

Brilliant, thanks Rammstein

I had another in the Spring who hadn't even registered with HMRC until then and had to go back 3 tax years where HMRC just charged interest but the amounts payable were very modest.

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By richard thomas
24th Sep 2020 17:19

You cannot amend the returns as the date for doing so has passed in all cases. Others will know more about what the best thing to do is than me, but I would suggest working out what additional tax is due and notifying HMRC sooner than later is a good idea.

I think you would be very lucky to get away without penalties under Schedule 24 FA 2007 for incorrect returns. The amount of the annual allowance charge should have been entered in box 10 on page Ai4 of the Additional Income pages, so there is an inaccuracy in each return.

No penalties will be due if the client establishes to HMRC’s satisfaction that the inaccuracy was neither careless nor deliberate. It is unlikely to be the latter, I would have thought (HMRC might have other thoughts). But you may have an uphill task persuading HMRC, and possibly a Tribunal, that it was not careless.

What the penalty range is for a careless inaccuracy will depend on two main things, whether disclosure of the inaccuracy was prompted or not (and here it will be unprompted) and whether any offshore element is involved.

If it is entirely domestic the range for an unpromoted careless inaccuracy is 0% to 30%. Where it falls within that range depends on the trinity in paragraph 9(1), “telling, helping and giving” as HMRC characterise it. This is why it is important to quantify the tax loss before disclosure and to offer complete access to any of your client’s records.

The penalty, if it is not 0%, is a percentage of the “potential lost revenue”. This (paragraph 5) is the “additional amount due or payable” as a result of correcting the inaccuracy. That will be the amount found by s 227 FA 2004. But note that under s 237B your client can ask the pension scheme to pay the tax at the cost of a reduction in the value of his pension. See HMRC’s Manual PTM056400 etc for how to arrange that. If the pension scheme agrees to pay it all then it seems that the lost revenue may be nil (see box 11 on page Ai4).

That is the penalty position irrespective of whether the tax can be collected. There must be doubt about that. HMRC would have to make an assessment under s 29 TMA or have power to make a standalone assessment. To do the former they must show that they have discovered that “any income which ought to have been assessed to income tax” has not been, but s 227(5) FA 2004 says the annual allowance charge is not to be treated as income for any purpose. There are cases where s 29 TMA is modified for certain pensions tax charges, but s 227 is not one of them. Beware though that this issue has been considered by the Upper Tribunal in HMRC v Bella Figura Ltd [2020] UKUT 120 (TC).

In that case it was the scheme sanction charge under s 239 FA 2004 which also explicitly says it is not income. The UT agreed that s 29 TMA unmodified could not apply and also agreed that regulation 9 did not modify s 29 in relation to that charge because it was Case 4 in Table 2 and not Cases 1 to 3.

But they held that regulation 4 gave HMRC a standalone power to raise an assessment.

However the annual allowance charge is not listed in the Table in regulation 4 so the UT’s decision is not relevant. It should also be noted that the scheme sanction charge is deliberately excluded from being in a return and self-assessment, unlike the annual allowance charge. So in my view there is no power to make an assessment to recover the AA charge. HMRC might not agree.

If the scheme will not agree to pay, then this argument would be open to you, but you would I’m sure wish to take proper counsel’s advice.

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Replying to richard thomas:
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By Southwestbeancounter
24th Sep 2020 17:52

Thank you so much for taking the time and effort to give such a comprehensive response, Richard - it is very much appreciated.

Just for reference, no offshore element is involved, just an ignorance of the rules on behalf of the client really especially after the changes in the 2015/16 fiscal year.

I have amended the tax returns and computed the additional tax due and after finding a useful tool on HMRC's website I have been able to calculate the rough amount of interest due and it also factors in late payment penalties at 15% so at least I can give the client a rough idea of where he potentially stands.

Thanks once again for your extremely helpful response.

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Replying to Southwestbeancounter:
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By richard thomas
24th Sep 2020 18:00

Just to be clear these are not late payment penalties (under Sch 56 FA 2009) but inaccuracy penalties under Sch 24 FA 2007.

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Replying to richard thomas:
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By Southwestbeancounter
24th Sep 2020 18:10

Ah, yes, of course, thank you Richard; much appreciated.

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Replying to richard thomas:
By SteveHa
25th Sep 2020 12:19

Richard, whilst I bow to your more extensive knowledge and experience in this regard, are HMRC not likely to take a more pragmatic view, especially in the current global circumstances and given a completely unprompted and complete disclosure (without which, they would have probably not made a S29 discovery in the first place) and so will not even consider penalties at any great length?

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Replying to SteveHa:
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By richard thomas
25th Sep 2020 12:44

Yes they may well, especially if the penalty could be nil. They may have taken the view that the AA charge was something of an unknown and so err on the side of leniency. But I was giving the legal situation, ie what HMRC could do and what the client might say to alleviate or remove tax and penalties.

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By Justin Bryant
25th Sep 2020 11:29

This is a little understood area of tax law (i.e. correcting tax returns outside the amendment period) that has been mentioned a few times before and there are cases that confirm a taxpayer is not obliged to inform HMRC of a genuine honest mistake in taxpayer's favour subsequently discovered (outside amendment time limit at least - a bit like VAT 4 year time limit), so you should advise the client accordingly (all else being equal risk of penalties re any DA is increased if not disclosed).

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Replying to Justin Bryant:
Psycho
By Wilson Philips
25th Sep 2020 12:07

I guess that it depends (in part) on whether or not the professional adviser considers him or herself to be bound by the Professional Conduct in Relation to Taxation rules.

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Replying to Wilson Philips:
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By Justin Bryant
25th Sep 2020 12:25

You are thinking of something different there and clearly do not understand the point I'm making e.g. I assume you would not tell a client to correct and pay a post 4 year VAT innocent error (actually that's quite a big assumption in your case come to think of it)?

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Replying to Justin Bryant:
By SteveHa
25th Sep 2020 13:11

Not just in Wilson's case. If any "out of time" error was not material, I would forget it. If there was a material error, I would still advise disclosure.

EDIT: Posted as a QBE cowboy. Who'd a thowt it?

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Replying to Justin Bryant:
Psycho
By Wilson Philips
25th Sep 2020 14:13

I can only assume (I don't think it's a big assumption) that you are unfamiliar with, or do not understand, the PCRT rules.

And in case you hadn't noticed, we are discussing income tax and self-assessment, neither of which have any relevance to normal VAT limits.

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Replying to Justin Bryant:
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By Southwestbeancounter
25th Sep 2020 13:22

Thanks Justin. I had always wondered about that particular scenario but could never actually find any direct links to explain the official view etc

In this instance the client wants to 'come clean' so to speak so that decision has already been made.

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